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| NCR Reports Third-Quarter 2005 Results |
DAYTON, Ohio--(BUSINESS WIRE)--Oct. 27, 2005--NCR Corporation (NYSE:NCR)
-- Teradata Data Warehousing delivers 16 percent revenue growth
-- Financial Self Service generates 17 percent operating margin
-- Customer Services operating margin improves 4 percentage
points
-- More than 50 percent increase in year-to-date cash generated
from operations
NCR Corporation (NYSE:NCR) today reported earnings of $1.18 per share and revenue of $1.50 billion for the quarter ended Sept. 30, 2005. The 3 percent revenue increase from the third quarter of 2004 was benefited by 1 percentage point from currency fluctuations. Revenue comparisons for each of NCR's businesses were benefited by approximately 1 percentage point. NCR reported third-quarter net income of $222 million, or $1.18 per share. This included the benefit of $137 million from the favorable settlement of prior-year tax audits. Excluding the tax item, NCR generated $85 million of net income, or $0.45 per share.(1) "I want to congratulate the NCR employees on their successful delivery of a very strong quarter which resulted in significant earnings expansion," said Bill Nuti, chief executive officer of NCR. "Key drivers of our performance included higher-than-expected revenue growth and profitability in our Teradata Data Warehousing business, substantial profit improvement from the second quarter in our Financial Self Service business, continued margin improvement in our Customer Services business, and ongoing success in delivering on our multi-year profit improvement plan."
Operating Segment Results(2)
Teradata Data Warehousing
NCR's Teradata Data Warehousing segment reported third-quarter revenue of $361 million, up 16 percent from the third quarter of 2004. Demand for Teradata's market-leading technology resulted in some customer purchases occurring earlier than previously expected. Operating income of $72 million increased 71 percent from the prior-year period. Operating margin increased 7 percentage points to 20 percent. The increase in profitability was due to higher volume and increased profitability from support services. Financial Self Service (ATMs) The Financial Self Service segment generated third-quarter revenue of $349 million, up 3 percent from a very strong year-ago period. Operating income of $60 million was down slightly from $63 million generated in the strong third quarter of 2004, primarily due to lower product margins caused by competitive pricing pressure. Retail Store Automation Retail Store Automation revenue of $209 million was down 4 percent from the third quarter of 2004. Retail Store Automation operating profit of $9 million was down from $11 million in the third quarter of 2004, largely due to lower revenue. Customer Services Customer Services revenue was down 4 percent to $451 million due to the company's strategy to reduce revenues associated with third-party products. Structural changes being made to optimize efficiency resulted in a $17 million improvement in operating income from the third quarter of 2004. Non-Operating Items Other Expense was $2 million in the third quarter of 2005, unchanged from the $2 million reported in the prior-year period. The company's third-quarter results included a non-cash $137 million tax benefit from the favorable settlement of prior-year tax audits. Excluding the tax benefit, the company's tax rate was 22 percent in the quarter. Cash Flow NCR's cash from operations increased to $162 million from $151 million in the third quarter of 2004. Capital expenditures in the third quarter of 2005 were $61 million, compared to $71 million of capital expenditures in the year-ago period. NCR generated $101 million of free cash flow (cash from operations less capital expenditures) in the third quarter of 2005 versus $80 million in the year-ago period.(3) Assuming approximately $235 million of capital expenditures, NCR is increasing its expectation for free cash flow to a range of $280 million to $300 million in 2005. This compares to the company's prior free cash flow expectation of $240 million to $250 million.
For the Period Ended
September 30
------------------------
Three Months Nine Months
------------ -----------
2005 2004 2005 2004
------ ----- ----- -----
Cash provided by operating activities
(GAAP)(3) $162 $151 $368 $241
Less capital expenditures for:
Net expenditures for reworkable service
parts (23) (26) (66) (65)
Expenditures for property, plant and
equipment (18) (22) (50) (55)
Additions to capitalized software (20) (23) (57) (63)
------ ----- ----- -----
Total capital expenditures (61) (71) (173) (183)
Free cash flow (non-GAAP measure)(3) $101 $80 $195 $58
Balance Sheet NCR ended the third quarter with $740 million in cash, cash equivalents and short-term investments, an increase from the $724 million cash balance on June 30, 2005. NCR's cash balance increased due to free cash flow generation and proceeds from employee stock plans exceeding net cash used for share repurchases. NCR repurchased approximately 3 million shares of NCR common stock for approximately $102 million during the third quarter. The company's board of directors authorized an additional $500 million share-repurchase program at its regularly scheduled board meeting on Oct. 26, 2005. The company now has approximately $554 million authorized for future share repurchases. As of Sept. 30, 2005, NCR had short- and long-term debt of $308 million, unchanged from June 30, 2005. Outlook For the full year, total revenue is expected to be flat compared to 2004. Including the net benefit of non-operational items, NCR expects its GAAP earnings per share to be $2.52 to $2.57. Excluding the net benefit of the non-operational items, NCR expects 2005 earnings per share in the $1.52 to $1.57 range.(1)
2005 Full-Year
Guidance
--------------
Year-over-year revenue growth:
Total NCR Flat
Teradata Data Warehousing 7 - 8%
Financial Self Service (ATMs) 0 - 2%
Retail Store Automation (2 - 3)%
Customer Services (5 - 6)%
Earnings per share - GAAP $2.52 - $2.57
Earnings per share - Non-GAAP(1) $1.52 - $1.57
Reconciliation of GAAP to Non-GAAP Measures(1)
Q3 2005 Q3 2004 FY 2005 FY 2004
Actual Actual Forecast Actual
------- ------- ------------ -------
Earnings Per Share (GAAP) $1.18 $0.23 $2.52-$2.57 $1.51
Benefit from the resolution of
prior-year tax audits 0.73 - 1.06 0.44
Early retirement-related pension
expense - - (0.08) -
Net gains from real estate
transactions - - 0.06 0.05
Net effect of other non-
operational items in 2005(4) - - (0.04) -
Benefit of other non-operational
items in 2004(5) - - - 0.07
------- ------- ------------ -------
Adjusted Earnings Per Share
(Non-GAAP) $0.45 $0.23 $1.52-$1.57 $0.95
2005 Third-Quarter Earnings Conference Call NCR's senior management will discuss the company's third-quarter results during a conference call today at 10:00 a.m. (ET). Access to the conference call, as well as a replay of the call, is available on NCR's Web site at http://investor.ncr.com/. Supplemental financial information regarding NCR's 2005 third-quarter operating results is also available on NCR's Web site. About NCR Corporation NCR Corporation (NYSE:NCR) is a leading global technology company helping businesses build stronger relationships with their customers. NCR's Teradata(R) data warehouses and ATMs, retail systems and IT services provide Relationship Technology(TM) solutions that maximize the value of customer interactions and help organizations create a stronger competitive position. Based in Dayton, Ohio, NCR (www.ncr.com) employs approximately 28,500 people worldwide. NCR and Teradata are trademarks or registered trademarks of NCR Corporation in the United States and other countries. NCR reports its results in accordance with Generally Accepted Accounting Principles in the United States, or GAAP. However, as described below, the company believes that certain non-GAAP measures found in this release are useful for investors. (1) NCR's management looks at the company's earnings-per-share results excluding certain items to assess the financial performance of the company and believes this information is useful for investors because it provides a more complete understanding of NCR's underlying operational performance, as well as consistency and comparability with past reports of financial results. In addition, management uses its earnings per share excluding these items to manage and determine effectiveness of its business managers and as a basis for incentive compensation. This non-GAAP measure should not be considered as a substitute for or superior to earnings per share determined in accordance with GAAP. (2) The operating segment results discussed in this earnings release exclude the impact of $31 million of pension expense in the third quarter of 2005 and $38 million of pension expense in the third quarter of 2004. When evaluating the year-over-year performance of and making decisions regarding its operating segments, NCR excludes the effect of pension expense/income. Schedule B, included in this earnings release, reconciles total "Income from operations excluding pension expense/income" for all of the company's operating segments to "Total income from operations" for the company. (3) Service parts, property, plant and equipment and additions to capitalized software. NCR's management uses free cash flow to assess the financial performance of the company and believes it is useful for investors because it relates the operating cash flow of the company to the capital that is spent to continue and improve business operations. In particular, free cash flow indicates the amount of cash generated after capital expenditures for, among other things, investment in the company's existing businesses, strategic acquisitions, strengthening the company's balance sheet, repurchase of company stock and repayment of the company's debt obligations. This non-GAAP measure should not be considered a substitute for or superior to cash flows from operating activities under GAAP, or as a proxy for cash flow available for discretionary spending. (4) Included in the first-quarter results was a $0.05 per-share charge to decrease the value of an equity investment which was partially offset by a $0.03 per-share benefit from the reduction of previously estimated accruals for purchased goods and services. The second quarter included a $0.02 charge related to the multi-year funding of NCR's charitable foundation. (5) Items include the benefit of $0.01 from the receipt of an acquisition break-up fee, a $0.04 benefit from the release of a reserve held for exiting countries in the Middle East and Africa region and a $0.02 benefit from the recovery of a non-trade receivable which was previously reserved. Note to Investors This news release contains forward-looking statements, including statements as to anticipated or expected results, beliefs, opinions and future financial performance, within the meaning of Section 21E of the Securities and Exchange Act of 1934. Forward-looking statements include projections of revenue, profit growth and other financial items, future economic performance and statements concerning analysts' earnings estimates, among other things. These forward-looking statements are based on current expectations and assumptions and involve risks and uncertainties that could cause NCR's actual results to differ materially. In addition to the factors discussed in this release, other risks and uncertainties include: the uncertain economic climate and its impact on the markets in general or on the ability of our suppliers to meet their commitments to us, or the timing of purchases by our current and potential customers and other general economic and business conditions; the timely development, production or acquisition and market acceptance of new and existing products and services (such as self-checkout and electronic shelf-labeling technologies, ATM outsourcing and enterprise data warehousing), including our ability to accelerate market acceptance of new products and services; shifts in market demands, continued competitive factors and pricing pressures and their impact on our ability to improve gross margins and profitability, especially in our more mature offerings; the effect of currency translation; short product cycles, rapidly changing technologies and maintaining competitive leadership position with respect to our solution offerings, particularly data warehousing technologies; tax rates; ability to execute our business and reengineering plans; turnover of workforce and the ability to attract and retain skilled employees, especially in light of recent cost-control measures taken by the company and the recent change in the company's chief executive officer position; availability and successful exploitation of new acquisition and alliance opportunities; changes in Generally Accepted Accounting Principles (GAAP) such as the future impact of expensing stock options and the resulting impact, if any, on the company's accounting policies; continued efforts to establish and maintain best-in-class internal information technology and control systems; and other factors detailed from time to time in the company's U.S. Securities and Exchange Commission reports and the company's annual reports to stockholders. The company does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Schedule A
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in millions, except per share amounts)
For the Periods Ended September 30
-----------------------------------
Three Months Nine Months
----------------- -----------------
2005 2004 2005 2004
------- ------- ------- -------
Revenue
Products $ 806 $ 762 $ 2,246 $ 2,151
Services 692 692 2,065 2,045
------- ------- ------- -------
Total revenue 1,498 1,454 4,311 4,196
Cost of products 512 489 1,445 1,377
Cost of services 550 570 1,663 1,709
------- ------- ------- -------
Total gross margin 436 395 1,203 1,110
% of Revenue 29.1% 27.2% 27.9% 26.5%
Selling, general and administrative
expenses 267 278 790 832
Research and development expenses 57 58 174 174
------- ------- ------- -------
Income from operations 112 59 239 104
% of Revenue 7.5% 4.1% 5.5% 2.5%
Other expense, net 2 2 10 2
------- ------- ------- -------
Income before income taxes 110 57 229 102
% of Revenue 7.3% 3.9% 5.3% 2.4%
Income tax (benefit) expense (112) 13 (150) (59)
------- ------- ------- -------
Net income $ 222 $ 44 $ 379 $ 161
======= ======= ======= =======
% of Revenue 14.8% 3.0% 8.8% 3.8%
Net income per common share
Basic $ 1.20 $ 0.24 $ 2.04 $ 0.86
======= ======= ======= =======
Diluted $ 1.18 $ 0.23 $ 1.99 $ 0.84
======= ======= ======= =======
Weighted average common shares
outstanding
Basic 184.9 186.7 185.8 188.0
Diluted 188.7 190.4 190.1 191.6
Schedule B
NCR CORPORATION
CONSOLIDATED REVENUE and OPERATING INCOME (LOSS) SUMMARY
(Unaudited)
(in millions)
For the Periods Ended September 30
----------------------------------------------
Three Months Nine Months
---------------------- ----------------------
% %
2005 2004 Change 2005 2004 Change
------ ------ ------ ------
Revenue by segment
Data Warehousing
Data Warehousing
solution $ 282 $ 238 18% $ 838 $ 733 14%
Data Warehousing
support services 79 74 7% 234 216 8%
------ ------ ------ ------
Total Data
Warehousing 361 312 16% 1,072 949 13%
Financial Self
Service 349 338 3% 944 919 3%
Retail Store
Automation 209 217 (4%) 595 594 -
Customer Services
Customer Service
Maintenance:
Financial Self
Service 150 145 3% 451 422 7%
Retail Store
Automation 115 115 - 346 344 1%
Payment &
Imaging and
Other 32 31 3% 96 95 1%
Third-Party
Products and
Exited
Businesses 70 84 (17%) 213 257 (17%)
------ ------ ------ ------
Total Customer
Services
Maintenance 367 375 (2%) 1,106 1,118 (1%)
Third-Party
Products 17 17 - 42 59 (29%)
Professional and
installation-
related services 67 77 (13%) 206 233 (12%)
------ ------ ------ ------
Total Customer
Services 451 469 (4%) 1,354 1,410 (4%)
Systemedia 127 127 - 363 358 1%
Payment & Imaging
and Other 42 41 2% 116 115 1%
Elimination of
installation-
related services
revenue included in
both the Customer
Services segment
and other segments (41) (50) (18%) (133) (149) (11%)
------ ------ ------ ------
-
Total revenue $1,498 $1,454 3% $4,311 $4,196 3%
====== ====== ====== ======
Operating income
(loss) by segment
Data Warehousing $ 72 $ 42 $ 220 $ 151
Financial Self
Service 60 63 128 134
Retail Store
Automation 9 11 12 8
Customer Services 8 (9) 25 (50)
Systemedia - 2 (1) 5
Payment & Imaging
and Other 7 3 14 3
Elimination of
installation-
related services
operating income
included in both
the Customer
Services segment
and other segments (13) (15) (42) (45)
------ ------ ------ ------
Subtotal - Segment
operating income 143 97 356 206
Pension expense (31) (38) (117) (102)
------ ------ ------ ------
Total income from
operations $ 112 $ 59 $ 239 $ 104
====== ====== ====== ======
Schedule C
NCR CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(in millions)
September 30 June 30 December 31
2005 2005 2004
------------ ------------ -----------
Assets
----------------------------
Current assets
Cash, cash equivalents
and short-term
investments $ 740 $ 724 $ 750
Accounts receivable, net 1,270 1,184 1,304
Inventories, net 395 369 355
Other current assets 216 232 224
------------ ------------ -----------
Total current assets 2,621 2,509 2,633
Reworkable service parts
and rental equipment, net 225 224 224
Property, plant and
equipment, net 403 408 446
Goodwill 123 124 124
Prepaid pension cost 1,338 1,346 1,446
Deferred income taxes 418 409 372
Other assets 306 298 309
------------ ------------ -----------
Total assets $ 5,434 $ 5,318 $ 5,554
============ ============ ===========
Liabilities and
stockholders' equity
----------------------------
Current liabilities
Short-term borrowings $ 2 $ 2 $ 2
Accounts payable 487 434 492
Payroll and benefits
liabilities 280 230 328
Deferred service revenue
and customer deposits 430 449 407
Other current
liabilities 467 432 495
------------ ------------ -----------
Total current liabilities 1,666 1,547 1,724
Long-term debt 306 306 307
Pension and indemnity plan
liabilities 489 491 517
Postretirement and
postemployment benefits
liabilities 250 245 244
Income taxes 315 461 492
Other liabilities 157 156 166
Minority interests 20 20 18
------------ ------------ -----------
Total liabilities 3,203 3,226 3,468
Total stockholders' equity 2,231 2,092 2,086
------------ ------------ -----------
Total liabilities and
stockholders' equity $ 5,434 $ 5,318 $ 5,554
============ ============ ===========
Schedule D
NCR CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in millions)
For the Periods Ended
September 30
---------------------------
Three Months Nine Months
------------- -------------
2005 2004 2005 2004
----- ----- ----- -----
Operating activities
Net income $ 222 $ 44 $ 379 $ 161
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization 63 68 189 204
Deferred income taxes - (2) - 2
Income tax settlement (137) - (201) (85)
Other adjustments to income, net - 1 1 -
Changes in assets and liabilities:
Receivables (86) 56 39 91
Inventories (26) (8) (40) (83)
Current payables 122 48 (20) (26)
Deferred service revenue and
customer deposits (19) (53) 23 12
Employee severance and pension 8 14 46 21
Other assets and liabilities 15 (17) (48) (56)
----- ----- ----- -----
Net cash provided by operating activities 162 151 368 241
Investing activities
Purchases of short-term investments - (5) - (20)
Proceeds from sales and maturities of
short-term investments - 5 - 20
Net expenditures and proceeds for
reworkable service parts (23) (26) (66) (65)
Expenditures for property, plant and
equipment (18) (22) (50) (55)
Proceeds from sales of property, plant
and equipment - 1 7 8
Additions to capitalized software (20) (23) (57) (63)
Other investing activities, net - (26) 2 (43)
----- ----- ----- -----
Net cash used in investing activities (61) (96) (164) (218)
Financing activities
Purchase of Company common stock (102) (89) (320) (271)
Short-term borrowings, net - - - 1
Cash received from real estate
transaction - - - 50
Proceeds from employee stock plans 15 27 117 136
Other financing activities, net - - - -
----- ----- ----- -----
Net cash used in financing activities (87) (62) (203) (84)
Effect of exchange rate changes on cash
and cash equivalents 2 (1) (11) (3)
----- ----- ----- -----
Increase (decrease) in cash and cash
equivalents 16 (8) (10) (64)
Cash and cash equivalents at beginning of
period 724 583 750 639
----- ----- ----- -----
Cash and cash equivalents at end of
period $ 740 $ 575 $ 740 $ 575
===== ===== ===== =====
CONTACT: NCR Corporation
Media: John Hourigan, 937-445-2078
john.hourigan@ncr.com
or
Investors: Gregg Swearingen, 937-445-4700
gregg.swearingen@ncr.com
SOURCE: NCR Corporation
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